Research from National Savings and Investments (NS&I), has shown the north/south property divide is closing. First time buyers in Scotland and the North of England have seen stark increases in the amount of time it will take them to save just a 5% deposit for their first home. Despite the housing market stabilising in many parts of the UK this year, house prices in these areas have continued to rise strongly, far outstripping increases in income.
NS&I’s research shows the average time taken to raise a deposit in the UK is now four years and nine months. This is a three month increase on last year, but the time taken has been static in the last six months, illustrating the overall stabilisation of house prices.
The regional picture for the North of England is very different to that of Southern England. In the South, high house price growth has slowed as prices peaked and people were priced out of the market, this has led to either small increases or no change at all to the time it takes first time buyers to raise a deposit.
However in the North, which boasts historically lower house prices, the property market has seen steady increases and first time buyers are facing a much longer wait. These stark increases in the traditionally lower priced areas of the UK mean it now takes first-time buyers in all UK regions at least four years to save for a deposit — the first time this has happened.
Scotland hardest hit
The Scots have been hardest hit over the past year, as their buoyant housing market has raised the time it takes to save for a 5% deposit by 12 months, from three years and six months (Q3 2004) to four years and six months (Q3 2005). Scottish first-time buyers now have to save for exactly the same length of time as those in the South East of England, whereas only twelve months ago they were a year apart.
House prices have also outstripped incomes across the North East and North West of England and Yorkshire and Humberside, as the length of time that first-time buyers need to save for has jumped by nine months in the past year, to four years and six months in both the North East and North West and four years and three months in Yorkshire and Humberside.
South stabilises
In most regions in the South the time taken to save a deposit remained stable over the last six months. London was the exception with a small increase of three months to four years and nine months as house prices took off again.
This contrast in regional fortunes can be attributed to a housing market that has generally peaked and now is stabilising in the south of the country while in the north it is continuing to rise to the levels set in the south.
However, despite these changes, the south was still home to the hardest pressed buyers. First-time buyers who live in the East of England take an average of five years to save for a 5% deposit for their first home (see table two) and buyers in London need to save for four years and nine months.
Annual Perspective:
In the third quarter of 2004, it took four years and six months to save up a 5% deposit on the typical first home in the UK. A typical starter home cost £143,743, and the deposit needed was £7,187. Today, the average price of a first time home is £153,032 and the 5% deposit required is £7,652 — an increase of £465. This is less than half the increase in the average deposit seen from Q1 2004 to Q1 2005 and a real indication that the housing market has cooled. However, house prices have still risen ahead of the increase in first-time buyer incomes — a mere rise of 4.5% for income.
Hope for continued stabilisation:
Although it now takes first time buyers at least four years to save for a 5% deposit, annual house price inflation has slowed significantly. Prices have risen just 6.5% (Q3 2004 — Q3 2005) compared to 16.5% (Q1 2004 — Q1 2005). The amount of time taken to save for a deposit has also stabilised in the last six months with the UK average and seven out of twelve regions showed no quarter on quarter increase.
Dax Harkins, senior savings strategist at National Savings and Investments, comments: "The market has visibly cooled over the last six months and it is reassuring that the time taken to raise a deposit has started to stabilise in some areas.
"However, it is concerning to see that it now takes all UK first-time buyers over four years to save for a deposit for their first home. With incomes and savings rates continuing to lag behind house price inflation, this means that potential first-time buyers need to start saving sooner and harder to get into the market. Also the increase in London’s house prices in the last six months after a period of stablisation between 2004 Q3 and 2005 Q1 suggests while the housing market has experienced a soft landing, prices may be set to take off again.
"With or without further rises, we would recommend that potential buyers continue to save the highest percentage of their income possible if they want to avoid an almost five year wait just to afford the deposit."
